Foreclosure auction set for Hilton

The Hilton Daytona Beach Oceanfront Resort, the area's largest hotel, will be put up for public auction next week as its lender seeks to recoup about $113.7 million owed on the property.

CLAYTON PARKBUSINESS WRITER

DAYTONA BEACH — The Hilton Daytona Beach Oceanfront Resort, the area's largest hotel, will be put up for public auction next week as its lenders seek to recoup about $113.7 million owed on the property. A circuit judge issued a foreclosure judgment late last month in favor of U.S. Bank, the trustee for the property's lenders against the owners of the 744-room hotel. LNR Partners, the special servicer acting on behalf of U.S. Bank has set an online auction for July 31 at 11 a.m. to try to sell the hotel property at 100 N. Atlantic Ave. for $113.7 million. That's far more than the hotel's assessed value of $43.5 million on the Volusia County Property Appraiser's website. Jason Reader, the Hilton's general manager, said he expects that "business-wise everything stays the same" and a new ownership group will take over the property. The Hilton is on pace to have its best year ever in terms of room occupancies and revenues, he said. The hotel employs between 400 and 500 workers. Several local officials said the foreclosure judgment could actually be a blessing for the hotel by freeing it from its "huge mortgage."Reader said he expects his company, Boston-based Pyramid Hotel Group, to continue to manage the hotel, barring the possibility that a surprise party steps forward to make an "astronomical bid." Pyramid would retain its minority ownership of the property, but with U.S. Bank or some other entity as the hotel's majority owner, as opposed to former majority owner General Electric Asset Management. "What it really does," Reader said of the foreclosure judgment, "is it gives Pyramid a chance to find another capital partner" with the ability to make a much-needed major investment to upgrade and modernize the hotel. He added that his company is continuing to make plans to begin a major renovation of the hotel in the fall of 2014 that he estimates will be in the range of $20 million.Local industry watchers agreed that it is unlikely a bidder would emerge willing to pay the bank's asking price."It's actually good news for the property and it's good news for Daytona because it clears the way for a new investor to come in and invest in the property," without being saddled with the enormous mortgage held by General Electric, said Volusia County Councilman Doug Daniels. General Electric paid $142 million to acquire the hotel in October 2007, according to Volusia County property records."It would be very unlikely for someone to come in and make an investment on a property with a huge mortgage against it," added Daniels, a local attorney who in the past has done work for the Hilton, but no longer represents the hotel. He recently was hired to become a consultant to the city on efforts to create a beachside entertainment zone, or e-zone, in the area that includes the Hilton.Jeffrey Hentz, president and chief executive officer of the Daytona Beach Area Convention & Visitors Bureau, offered a similar assessment. "Even though it may look like a negative, it may actually be a real positive," he said, adding the foreclosure was "necessary to get them (the hotel) healthy and strong again." Hentz said he hopes the new owners — whether it is U.S. Bank or another party — will retain Pyramid as the hotel's operators. Laura Roth, chief deputy clerk and general counsel for the Volusia County Clerk of the Court, said the foreclosure judgment was "consensual" on the part of all parties, including the lender, General Electric and Pyramid. That could indicate an agreement may be in place that would allow Pyramid to continue running the hotel. "In this case, most likely the market value (what outside bidders are willing to pay) is not going to meet what's owed," she said. "You can essentially bank that the property will go back to (U.S. Bank)."Reader said even if the hotel were to be sold to an outside bidder, which he said he believes is an extremely remote possibility, there's an "over 90 percent certainty that we will still manage the property."Daniels likened what happened with General Electric and the Hilton property to what happened with "so many homeowners around here" who bought at the height of the housing market. "The bubble burst and tourism dropped off the charts," he said of the Hilton. The foreclosure judgment says U.S. Bank is owed $94.7 million in principal, plus interest, fees and other costs. The judgment comes after a global rating agency, Fitch Ratings, deemed the hotel in "imminent default" in October 2011. "Can you imagine trying to make payments on a $94 million mortgage?" Daniels asked. "There's a lot of homeowners that can relate to that." The July 31 auction will occur online at volusia.realforeclose.com. The foreclosure judgment states that U.S. Bank as the "noteholder" would be willing to sell to the highest and best bidder for cash, but that it could decide to submit its own bid and that it reserves the right to cancel the scheduled auction even as late as that morning.

Editor's note: U.S. Bank is the trustee for the lenders of the Hilton Daytona Beach Oceanfront Resort. The special servicer of the property, Miami-based LNR Partners, acting on behalf of U.S. Bank, is the party involved in deciding whether to hold the auction.